JUPITER STRATEGIC ABSOLUTE RETURN BOND FUND: Steady Eddie

Fund manager Mark Nash expects equity markets to remain volatile in the coming weeks as the issues leading up to the collapse of Silicon Valley Bank and the acquisition of Credit Suisse by Swiss rival UBS continue to affect banks far and wide.

Nash is part of a 29-person fixed income team at fund management group Jupiter, which manages £9.5 billion in bond assets. He believes there is a risk of contagion if other banks – especially smaller ones – are pulled into the crisis as their asset values ​​fall, lending dries up and depositors flee for the hills.

According to him, some regional banks in the United States are at greatest risk, which he says have had access to cheap money to finance their loans for 15 years. But that era has now come to an abrupt end due to higher interest rates, blocking new borrowing.

Nash believes this contagion could spread beyond the banking system, causing investors to pile up their illiquid assets, such as commercial real estate funds. Some managers of these funds have no choice but to raise the drawbridge and prevent withdrawals.

All pretty scary – and Nash believes the short-term economic fallout won’t be pretty.

Yet he is not full of doom and gloom. He believes the shakeout in the banking sector is a sign that the war on inflation may soon be won – and that the sharp rise in interest rates that have taken place since late 2021 will come to an end.

When this happens – falls in both interest rates and inflation – Nash thinks it will put the global economy on a stronger footing and mark the start of a rally for assets like stocks and bonds in particular.

“Over the past 18 months, higher inflation and higher interest rates have been bad for both stocks and bonds,” he says. But now is not a bad time to buy bonds. Investors should benefit if interest rates fall and bond prices rise.” When bond prices rise, fund managers can post capital gains — to add to the income the bonds promise to pay.

Together with James Novotny and Huw Davies, Nash manages Jupiter Strategic Absolute Return Bond, a £620 million fund that aims to generate positive returns for investors from an 87-member portfolio made up primarily of government bonds. These bonds, which represent 86 percent of the portfolio, are backed by the governments of the US, UK, Germany and New Zealand.

The fund has largely lived up to its name, delivering positive returns in six of the past eight full calendar years. Since its launch in spring 2014, the fund has achieved a total return of 17 percent. As the chart shows, performance was Steady Eddie-like compared to the more volatile FTSE All-Share Index.

As a result, it was not negatively impacted by the market downturn due to the global economic lockdown in 2020. The price also did not come under pressure last November, when markets panicked over then-Prime Minister Liz Truss’s attempt not to financed tax cuts. Nash says the fund is popular with large financial institutions such as pension funds, as well as family offices that manage money on behalf of high net worth individuals.

“It’s great portfolio diversification,” he adds, “and generates returns when other assets pull out.”

The annual costs total 0.65 percent and the fund generates an annual income of 2.9 percent.